We hear that Peru’s headline inflation number in the first 11 months of 2007 is running at 3.08%. Now this might be a tad over the inflation target set by the country’s central bank (2% plus or minus one percentage point), but what with one thing and another it’s a good effort for 2007 and most analysts are currently lauding this figure. So it is a pity that the rate we are given is not true then, isn’t it?
In an excellent article published by renowned economist Professor Jürgen Schuldt of Lima’s Universidad de Pacifico, this table using Banco Central del Peru’s own figures (and reproduced here with English titling) caught the eye:
We see that Lima’s inflation rate, the one used by Peru’s central bank for its inflation targeting calculations, is indeed running at 3.08%. But by incorporating the regional urban inflation rates for all Peru and weighting them to population count, inflation is running at 50% more than the figure presented as ‘representative’ by the government. Although it must be mentioned that although the regional inflation figures are calculated for urban populations and headcounts here are for all population, be it urban or rural, there is little doubt that the figures shown here give us a closer measure of the real inflation rate.
Some of the problem is in the reporting, as newswires just take the Lima metropolitan figures as “Peru’s inflation rate”. Very few (with due credit to Reuters) explain that the headline figure is for the Lima metropolitan area only, but even then it is cast off as a side issue with no correlation to the higher rates in the rest of the country. However, most of the problem lies inside the counting system. It does beg the question as to why the rate incurred by 33.1% of Peru, which is also by coincidence the lowest regional rate in the country, is fed to us as “the inflation rate”. Why is it not of more concern to consider the 66.9% of Peruvians who do not live in the Lima/Callao conurbation? Why does the central bank assiduously collate regional inflation rates for each of the 25 departments and then ignore its own figures? Why doesn’t the central bank target inflation to a truly representative national rate? Even the ruling APRA party stronghold regions such as La Libertad are experiencing inflation at over 50% above the headline level, and when it comes to Peru’s second city Arequipa 8+% inflation basically cancels out the much feted headline GDP growth.
Although the real inflation rate may be somewhat buried in bureaucratic obfuscation, Peruvians themselves seem to be well aware of the situation. In a recent poll, there was a clear weighting of people in South and Central regions (corresponding to the worst black spots of Cusco, Arequipa Moquegua, Tacna, Pasco, Ica etc) that felt inflation was worse since García came to power.
However, we note that Lima/Callao scored better than any other region.
Ironically, in a recent TV interview the director of the polling company discounted his own survey, saying that the population has an “error of perception”. Regional inflation statistics suggest otherwise. The combination points to a citizenry that is highly perceptive of the current situation. Perhaps those errors of perception come not from the people but from those executives that seldom set foot outside the capital.
Peru is certainly not the only LatAm state that can be charged with massaging its macroeconomic figures. One need only consider what Argentines think of their “official” inflation rate. But when whole economic policies are based around figures that exclude the majority of Peru’s population, it is not surprising that the feeling of disenfranchisement in the provinces is growing and with it the puzzlement of foreign observers (“But they’re doing so well! Why should they be unhappy?”) when they hear about the latest round of strikes and social unrest. They would do well to read the small print.